Cross Border Investing Activity: Return Enhancing or Return Destroying?

Real Estate Investment Trusts (REITs) in the United States have grown extremely fast in terms of assets and market capitalization since the early 1990s. As with many industries, U.S. REITs began acquiring foreign properties as their size grew and they needed to seek new investment opportunities. This study investigates the role of holding foreign assets upon the total return of U.S.-based REITs from 1995 through 2016. We find that holding foreign properties is associated with negative relative performance when measured by return on average equity, an accounting-based measure. However, when excess return to shareholders is measured, increasing relative performance is found. Thus, it appears that investors are rewarding REITs with greater degrees of international holdings, while simultaneously accepting lower return on equity and potentially lower dividend and distribution yields.